Solar Thin Films Inc : Solar Thin Films: A Company in Transition

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11/05/2013 | 04:10pm CET

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Solar Thin Films Inc. (OTCBB: SLTZ) was formerly a developer of thin-film amorphous silicon photovoltaic (?PV?) modules through a subsidiary in Budapest, Hungary. Unfortunately, reductions in European and U.S. subsidies for solar projects and China?s massive oversupply of photovoltaic modules forced many companies to either shut down completely - like Solyndra and many others - or accept radically lower revenues and profits.

The company?s management team opted to pivot the business to focus on large-scale solar opportunities, shipping containers innovations, and eco-housing projects through the acquisition of Quality Resource Technologies Inc (?QRT?). While these three businesses may seem unrelated on the surface, the plan is to generate significant near-term revenues from the solar projects and funnel them into developing long-term and higher-margin prospects in the shipping container and eco-housing industries.

Fiber Reinforced Plastics Technology

The QRT acquisition was completed on April 30, 2013, through an exchange of common shares. The acquisition provides the company with a patented shipping container technology, eco-housing technology for disaster relief, and a renewable energy division with waste-to-energy and solar technologies. At the core of these divisions is a patented Fiber Reinforced Plastics (?FRP?) technology platform. Also, and very importantly, the acquisition of QRT brought new leadership to the company, when James Solano, former CEO of QRT, agreed to become CEO of Solar Thin Films.

In a July 11, 2013 update, the company noted that it was in advanced negotiations to purchase a large manufacturing facility in North Carolina, finalizing negotiations to build its first eco-house in areas of New York affected by Hurricane Sandy, and in negotiations to build, own and operate solar fields in West Virginia and Kentucky that would generate recurring revenue.

Later that month, on July 23, 2013, the company announced its first contract to construct an eco-house in Highland Park, New York on the site of a single family home that was completely destroyed by Hurricane Sandy. And then, on August 5, 2013, the firm signed an agreement-in-principle for a $10 million project in Uganda, Africa to design, supply and construct a module school and clinic based on its eco-housing, FRP and solar technologies.

According to Solar Thin Films CEO James Solano, ?We have made excellent progress since the QRT acquisition and are excited to be able to report prospective near-term revenue building events, in advance of commencing operations in our future manufacturing facility. We will continue to provide updates on progress in all areas of our company as news develops.?

Enormous Solar Fields Opportunity

On September 13, 2013, Solar Thin Films signed an agreement with Tri-State Wind Energy LLC to provide three solar fields initially capable of producing 35MW of electricity per year. The contract is expected to generate payments totaling $124-160 million over the life of the three projects under that umbrella. For each project, the company will receive a 20% initial deposit, as well as progress payments, which should help keep capital expenditures low.

According to Mr. Solano, ?This is an important development for the company. These design, supply and install projects will generate significant start-up revenue for the company, at healthy expected profit margins. We have every reason to believe that we will consummate these contracts very shortly and will report further developments as they occur.?

Currently, the company is trading with a market capitalization of approximately $39 million, which represents just a fraction of the potential solar contract valuation alone. The present value of a $140 million solar contract could be approximately $111 million in today?s dollars, assuming an 8% discount rate and three-year time period. As a result, the current market valuation may be failing to account for the potential of this contract.

In addition to these enormous solar projects, management also acquired KLC Green Energy Corp (?KLC?). The KLC acquisition has already led to the installation of a Smart Solar Tracking System at a PGA-authorized golf course, Manhattan Woods, in Pearl River, New York.

Reverse Split & Valuation

Solar Thin Films underwent a 1 for 500 reverse split on April 5, 2013 in order to bring its share price above $1.00 and make it eligible for an eventual up-listing. As of June 25, 2013, the company reported 150 million authorized shares, 47.2 million outstanding shares, and just over 17 million shares in the float. Interestingly, short interest remains at 19,397 (485%), suggesting that short sellers may need to cover their positions with further potential upside.

On October 2, 2013, the company also announced the sale of its Hungarian subsidiary, which resulted in a $4 million reduction in liabilities and a stronger working capital position moving forward. This working capital position was further enhanced on October 5, 2013 by an agreement to sell up to $6 million of 5% of cumulative convertible preferred stock to Apollo Marketing LLC.

Given the significant near-term potential for the solar contract and long-term potential from the FRP technology, investors in solar sector stocks like Trina Solar Ltd. (NYSE: TSL) or eco-home sector stocks like Eco Building Products Inc. (OTCBB: ECOB) may want to take a closer look at the company?s stock moving forward. For more information, read the company?s SEC filings and setup free alerts at http://secfilings.com/SearchResults.aspx?ticker=SLTZ.

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